Going Limited?

[bwglaw]

Shelley, what kind of business are you in and what is your turnover, if you are prepared to tell us. There will be people on here willing to advise from a tax/legal perspective

 

[Shelley]

hi there, i was freelance hairdresser, and leased hairdressers 2 years ago. as soon as i started that they recommend i went sole trader.
My first year i think was 45000 approx.

 

[Pilfo]

Hi all happy new year.

All this ltd bis doesnt make much sense to me, but after being ltd for 4 years, i have been advised to go back sole trader.

Why would this be??? Im not very clued up on all this.

I'm quite surprised that after 4 years being a (director?) Ltd company, you didn't understand why/what you were doing.

Pilfo

 

[Shelley]

I have a very good accountant and leave everything to his judgement. But reading through the post i was interested to know and hear everyone elses take on the subjuect. But when it comes to things like that im not the best.
Hope that explains pilfo.

 

[Ozzy]

Hi Shelley,
Limited liability is meant to be used where you have a risk/liability in the business that you do (in the most basic of terms). As a hairdresser I am surprised you was recommended to do so, even up to being a salon and employing people it is likely Sole Trader will suit you fine.
(insert disclaimers that I dont know all the facts about your situation so my comments are based on general assumptions).

 

[Shelley]

thanks ozzy that made more sense. when i changed my accountant over 2 years ago, he changed me back to sole trader.

 

[Faulty Towers]

Happy new year to you all!!

My wife has a hairdressing salon our turnover will be about £80 000 this year - would we be better off as a sole trader?

Dave

 

[Alpha]

My wife has a hairdressing salon our turnover will be about £80 000 this year - would we be better off as a sole trader?

I take you mean would she be better off.

By just telling us the turnover god only knows but I'll guess that with typical hairdresser soletrader margins it would be questionable.

Tell me profit figures via PM and I will give you a rough tax only answer.

 

[Ozzy]

The decision isn't based on just turnover alone, it depends on what liabilities she has. Does she (her business) own the salon premises or rent them? How many staff does she employ, or are all here stylists freelancers?

If it is just her, the stylists are freelance, and she only rents the premises on a short term renewable arrangement, then sole trader should be fine.
If she owns the premises, employs the staff directly, then Limited company may be best.
Again, basic terms here but it shoudl give you an idea of the things to consider. Look at the liabilities your business will have and if you feel you need to protect your personal assetts (home, car) then Limited is best.

 

[Faulty Towers]

Thanks for your replies.

We have 5 employees.

We rent the premises.

I suppose the protection of being Ltd. is comforting - how far does the protection go?

 

[Alpha]

I suppose the protection of being Ltd. is comforting - how far does the protection go?

It all depends.

Do you have any loans?

Have the directors given personal guarantees in respect of the rent or possible loans? In which case you will still be liable for these.

Possible worse case scenario.....one of the employees takes you to a tribunal and is awarded £150000 damages, you cannot pay and the company goes under. All you would lose is the business and have to pay anything with personal guarantees.

As a soletrader you could lose any personal assets required to pay the debts.

 

Just to throw my 10 pence worth in here...
I would be cautious about getting into work with the councils, at present the council only operates with companies who are on select lists or who are registered with construction line and only then if you have the excellent credentials on past jobs.
They also pay you in around 8 weeks after !!!

By the way , i currently work for a local authority...

 

[bwglaw]

Possible worse case scenario.....one of the employees takes you to a tribunal and is awarded £150000 damages, you cannot pay and the company goes under. All you would lose is the business and have to pay anything with personal guarantees.

As a soletrader you could lose any personal assets required to pay the debts.

Alpha is correct but I would also add that if the employee names a Director i.e. you, as second Respondent then you will also be personally liable, especially if the business goes into liquidation. I often draft and issue claims in the Employment Tribunal and in most cases I name a second Respondent in the event the business liquidates. Many Directors try to 'hide' behind the company.

Additionally, if you become a Director of a Ltd Company it does not give you full protection especially if you have conducted the business beyond your powers (ultra vires), or intentionally acted with intent to 'run the business to the ground', or defrauded suppliers with knowledge that the company cannot meet any payment etc.

Like Alpha said, it is a worse case scenario.

 

[Antonia @limeone.com]

I would be careful about confusing the company with the personal liabilities of the directors. I am afraid employees hoping to get redress in an employment tribunal may get an order including a director personally but will have major practical difficulties in enforcement ( payment).


The reason is that a limited company is a separate legal body and therefore unless the directors are trading fraudulently or unlawfully they will be able to liquidate the company with 'limited liability' under the Company Act.

As with any business structure you need to balance the risk and cost of exposure against the costs involved. Normally where you have employees many accountants will advise the Ltd route.

 

[bwglaw]

I would be careful about confusing the company with the personal liabilities of the directors. I am afraid employees hoping to get redress in an employment tribunal may get an order including a director personally but will have major practical difficulties in enforcement ( payment).

I presume you are referring to my point. I do not agree with your point entirely.

If an employee, lets say, complains of sexual harassment against her boss, the Director of the Ltd Co and he was the harasser. A claim can be brought against the employer ABC Ltd and Mr. Smith (the Director) named as second Respondent. Employee awarded damages and seeks enforcement. ABC Ltd liquidates. The employee can go to County Court to have the Award changed to a County Court Judgment and then enforce this against the individual, regardless of ABC Ltd.

I have actually done a case based on the above scenario and I had successfully enforced against the individual Director. It can only be enforced against the indvidual Director if he/she was the perpetrator. If the claim was Unfair Dismissal and ABC Ltd liquidated then it is unlikely the employee will recover from the Director individually

My previous point was to point out that even individual Director's can be personally liable in proceedings. This tactic is used often in 'discrimination' claims so that employers cannot hide behind the Ltd Co

Jonathan

 

[Antonia @limeone.com]

The thread was from a business owners' perspective who do, in the main, go down the Ltd company route to mitigate liability.

As I explained the issue here is lawful behaviour, behave unlawfully and expect to pick up the tab as limitation will not help you.

The point I believe you are making is a very specific one, Jonathan and even in employment cases is rare, as indeed are fully contested discrimination cases.

I am sure you would agree, in general terms to the lawful business owner who does not indulge in unlawful behaviour, that the Ltd route is safer although more costly ( accounting etc) for most, if there is a risk of financial exposure? Directors' guarantees and personal liabilities entered into aside?

 

[bwglaw]

The thread was from a business owners' perspective who do, in the main, go down the Ltd company route to mitigate liability.

As I explained the issue here is lawful behaviour, behave unlawfully and expect to pick up the tab as limitation will not help you.

I agree that limited liability is not 100% in some cases.

The point I believe you are making is a very specific one, Jonathan and even in employment cases is rare, as indeed are fully contested discrimination cases.

A specific point I was making yes. Many people are not aware that they can be personally liable in discrimination cases.

I don't quite agree that it is rare. I specialise in discrimination law and I see it often, especially with smaller firms when the perpetrator is often the most senior person i.e. Director.

If the perpetrator was an employed Manager and was named as SR, it is still possible to claim damages from the individual if the employer is insolvent or if the individual has left that employment. This I agree may be rare to resort to having to enforce against an individual but naming SR is still common.

As I said it is common where discrimination is claimed that a Second Respondent is named, permission is not often required from the ET at the time of issuing the ET1. Permission required if adding SR after issuing ET1.

I appreciate my point was a specific one but I was trying to make it known that Directors cannot entirely evade personal liability and I have seen Directors fall into that trap. I also serve ET1 at Director's home address and this often comes as a surprise.

I am sure you would agree, in general terms to the lawful business owner who does not indulge in unlawful behaviour, that the Ltd route is safer although more costly ( accounting etc) for most, if there is a risk of financial exposure? Directors' guarantees and personal liabilities entered into aside?

Agree, although I was not contributing to this point in this thread.

Jonathan

PS. Happy to discuss privately or on another thread so to avoid the matter becoming complex for the layperson and going slightly off-topic

 

[Ozzy]

PS. Happy to discuss privately or on another thread so to avoid the matter becoming complex for the layperson and going slightly off-topic

Yes please guys

 

[toystoyou]

hi
I have a ltd company, www.toys-to-you.co.uk, and from what my accountant has told me you cannot pay yourself any dividends unless your company is in profit. It might just be £1.50 profit but if that's all you're making then that's all you can draw from the company.
If you own the ltd co, you cannot earn 'wages' from it unless you are an employee. If it is your ltd company surely you would want to be a director? IF not, who would the directors be? You also need a company secretary.
The benefits are the tax reductions. You don't pay tax unless your profits are over £10,000 (last time I checked!). And the tax was lower than for a sole trader. You didn't pay tax on dividends (wages) but you do now - thanks Mr Brown!!!
And you are not responsible for the debt run up by the company. That's why lots of big 'business' started ltd co's. They could do what they liked and then go into liquidation. There have since been some stringent regulations put in place to prevent this but it is still kind of like owning a non-liable company.
I got an accountant to set up the whole ltd co and it cost £250. You need a registered company address (i use my accountant's), so if you're working from home then you need an accountant or lawyer who will do this for you. I would recommend that if you set up a ltd company you get a professional to do cos a lot of these online companies offering to set you up just don't do it properly or leave you with a lot of work to do.
And you need an accountant to do your books to submit to companies house cos they're difficult.
Good luck with your ventures.

 

[seinzance]

What do we all think of my grand ideas??

Crap. Sorry, just saying it as it is. It is admirable to focus on doing something for yourself, but I think a trip back to the drawing board will be worthwhile.

Cheers and kind regards, Nigel[/quote][/quote]

Lol! Harsh, but true. THINK BIG. Plan a multi-million pound PLC if you're really serious about business. Then at least you have some worthy goals. Football would be stupid without any goal posts, right?

 

[I, Brian]

Just to add, I set up a limited company precisely to protect against liabilities - but when I did actually run into a liability issue, the company involved threatened to serve papers against my limited company, myself personally, and one of my other business interests.

Sure, maybe they wouldn't have a good case, but they made it clear they were going to be as threatening and aggressive as possible, and it certainly wasn't worth my while to take them on.

Some businesses seem to exist by threatening existing customers against complaining in public, but big fish can do that.

 

[Ozzy]

Hi Brian,
I've experienced this myself on several occasions. Thankfully I rode through the threats at great expense and came out the other end much stronger.

I couldn't agree more, larger companies do try and use their weight to push the smaller company out of business. However, this is going off topic from this thread

 

[sammie]

Hi,
Understanding a how a business runs is important!. I would like to ask you what you want as an outcome from this business?, then the other question surrounding going limited is really straight forward and end user friendly.
Please let me know your thoughts
sammie

 

[KateCB]

If you search for companies house on the net, there are links for buying a LTD company name and associated paperwork direct from them; there is a £15.00 online filing fee per year to keep the registration up, (£30.00 if you do the paper version!) a requirement for self assessment each year once you are a director (even if you make nothing and earn nothing) and the accountant must be chartered rather than AAT etc; accountants fees can range from £350 - £1000PA for a small LTD company - I would go the sole trader with liability insurance until you have a big enough pot to justify it. Don't be fooled though, going Ltd won't save your home if things get really tough, the tax man and Customs (VAT) can come in through the back door to settle debts of the business of which you are the founder. You are also liable for the accuracy of accounts, so make sure you do account for every penny once it is its own legal entity.